What’s In Your SMSF Investment Strategy?


One of the benefits of having your own self-managed super fund is having control of how your retirement funds are invested. As a trustee of your own fund, you are required by law to prepare an SMSF investment strategy. You have the freedom to choose which asset classes you invest into, as well as how far you want to diversify your fund’s investments, as long as your strategy complies with the rules.


SMSF Investment Strategy Legal Requirements


Your SMSF investment strategy is the detailed financial plan created by the trustee of the fund. Your strategy needs to document the decisions you make for how you invest your SMSF assets. The strategy also needs to incorporate a plan to monitor the performance of your chosen investments.


According to the Superannuation Industry Supervision (SIS) Act (http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/) the trustee of the SMSF has a duty to select which assets are invested into for the SMSF. The trustee is also responsible for monitoring the performance of any investments and also to review the strategy on a regular basis to ensure the fund is meeting its objectives.


When considering an investment strategy, the trustee should determine the projected cash flow requirements of the fund. Your SMSF will need to have sufficient cash flow to cover any anticipated costs, such as

  • Tax payments
  • Administration costs
  • Insurance costs
  • Brokerage fees
  • Legal fees
  • Advisor’s charges
  • Accountant’s fees
  • Lump sum benefits if a member chooses to leave the fund
  • or pension payments

The trustee is also accountable for the ongoing management of the funds invested.


Every SMSF is required to undergo an independent annual audit, which is designed to review the investments within the fund. A part of the audit will check that any investments chosen are in line with the investment strategy that was created. The audit will also check whether the management and administration of the SMSF has been compliant in line with the regulations set out under section 35C of the Superannuation Industry Supervisory Act 1993 (http://www.austlii.edu.au/au/legis/cth/consol_act/sia1993473/index.html) .


Diversification of SMSF Assets


Before deciding on an investment into any particular asset class, it’s important to take into account the risk involved and the likely return that can be anticipated from any planned investments.  Diversifying the types of assets your fund invests into can help to minimize exposure to risk.


Diversification means spreading the fund’s investments across a range of different asset classes and types in an effort to reduce the potential volatility of returns on investments.


For example, you might choose to divide your total funds into allocated portions that include investments into:


  • Cash
  • Term Deposits
  • Managed Funds
  • Domestic Shares/Equities
  • International Shares/Equities
  • Residential Investment Property
  • Commercial Investment Property


If one asset is underperforming against expectations, it’s fine to re-visit your SMSF investment strategy and make adjustments where necessary.


Buying Property in SMSF


You can purchase an investment property in your SMSF. If you have the funds available, you can purchase the property outright using cash. However, you also have the option of using some of your funds to cover the deposit for your purchase and borrow the remainder of the funds from a limited recourse loan.


A part of your SMSF investment strategy needs to determine the ability of the SMSF to discharge any of the fund’s liabilities, including repaying limited resource loans for property investment.


Once your SMSF investment property purchase is completed, you’ll have rental income being paid into the fund. The rental income will help to repay the loan amount over time. You also still have the super contributions being paid into your fund by each member’s employer on a regular basis.


When the loan is repaid in full, your self-managed super fund is able to continue receiving any rental income generated by that property for as long as the fund still owns it.


You can find more information about how property investment in SMSF works here  http://smsf4sa.com/self-managed-super-fund/smsf-property-investment-buy-property-self-managed-super-fund/





Author: PropertyAssetPlanning

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